Trade war threats risk global instability
US TARIFFS ON ALLIES AND RIVALS PROVOKE BROAD RETALIATION
As the Trump administration imposes tariffs on allies and rivals alike, provoking broad retaliation, global commerce is suffering disruption, flashing signs of strains that could hamper economic growth.
The latest escalation came on Friday, when President Donald Trump announced $50 billion (Dh183.5 billion) in tariffs on Chinese goods, prompting swift retribution from Beijing.
On Saturday China responded to the US tariffs by announcing 25 per cent duty on $50 billion in US goods, including farm produce and autos.
Speaking on the ABC’s Insiders programme yesterday Australia’s Labor senator Penny Wong said the US decision was “a bad thing, a very negative development”.
“I think it is a negative thing because trade, conflict in the trading relationship, risks some instability in the broader bilateral relationship. We have to continue to assert why the trading system matters and we have to continue to try and ensure that this doesn’t escalate”.
Only a few months ago, the global economy appeared to be humming, with all major nations growing in unison. Now, the world’s fortunes are imperilled by an unfolding trade war.
As the Trump administration imposes tariffs on allies and rivals alike, provoking broad retaliation, global commerce is suffering disruption, flashing signs of strains that could hamper economic growth. The latest escalation came on Friday, when President Donald Trump announced $50 billion (Dh183.5 billion) in tariffs on Chinese goods, prompting swift retribution from Beijing.
As the conflict broadens, shipments are slowing at ports and airfreight terminals around the world. Prices for crucial raw materials are rising. At factories from Germany to Mexico, orders are being cut and investments delayed. US farmers are losing sales as trading partners hit back with duties of their own.
Workers in a Canadian steel mill scrambled to recall rail cars headed to the US border after Trump this month slapped tariffs on imported metals. A Seattle customer soon cancelled an order.
“The impact was felt immediately,” said Jon Hobbs president of AltaSteel in Edmonton. “The penny is really dropping now as to what this means to people’s businesses.”
The Trump administration portrays its confrontational stance as a means of forcing multinational companies to bring factory production back to American shores. Trump has described trade wars as “easy to win” while vowing to rebalance the United States’ trade deficits with major economies like China and Germany.
Trump’s offensive may yet prove to be a negotiating tactic that threatens economic pain to force deals, rather than a move to a full-blown trade war. Americans appear to be better insulated than most from the consequences of trade hostilities. As a large economy in relatively strong shape, the United States can find domestic buyers for its goods and services when export opportunities shrink.
Even so, history has proved that trade wars are costly while escalating risks of broader hostilities. Fears are deepening that the current outbreak of antagonism could drag down the rest of the world.
Protectionism
Before most trade measures fully take effect, businesses are already grappling with the consequences — threats to their supplies, uncertainty over the terms of trade and gnawing fear about what comes next.
“Just talking about protectionism is causing trouble,” said Marie Owens Thomsen, global chief economist at Indosuez Wealth Management in Geneva. “It’s an existential risk to the world economy.”
After two years of expansion, airfreight traffic was flat over the first three months of the year, according to the International Air Transport Association. Dips have been especially pronounced in Europe and Asia.
Container ships, the workhorses of global commerce, have seen no growth in freight since last fall in seasonally adjusted terms, according to a key index. A gauge of world trade tracked by Oxford Economics, a research firm in London, recently registered its weakest showing since early 2017.
“Let us not understate the macroeconomic impact,” the managing director of the International Monetary Fund, Christine Lagarde, warned this past week about trade conflicts. “It would be serious, not only if the United States took action, but especially if other countries were to retaliate, notably those who would be most affected, such as Canada, Europe and Germany.” Threats to trade are emerging just as the global economy contends with other substantial challenges.
The Trump administration has embroiled in increasingly acrimonious conflicts with huge trading partners.
The United States last year imported more than $600 billion in goods and services from Canada and Mexico, the two other nations in the North American Free Trade Agreement — a deal Trump has threatened to blow up. Americans bought more than $500 billion in wares from China, and another $450 billion from the European Union. Collectively, that amounts to nearly two-thirds of all US imports.
Menacing challenge
“If you seriously disrupt any of these three, you’re going to feel the effects,” said Adam Slater, lead economist at Oxford Economics. “If you disrupt all three at once, you’re going to feel it quite severely.”
For companies that make steel and aluminium, the US tariffs have presented a direct and menacing challenge to their businesses.
At Alta, the steel mill in Edmonton, the metals tariffs delivered an immediate crisis. Roughly one-fifth of the company’s business involves shipping steel to American customers. Suddenly, the border separating Canada from the United States was effectively enshrouded in fog. The company redirected rail cars destined for customers in the United States, incurring extra freight charges reaching C$100,000 (about $76,000).
Across Europe, steelmakers fret about an indirect consequence of Trump’s tariffs — cheap Chinese steel previously destined for the United States, now redirected to their continent. “We have seen increases,” said Mathias Ternell, international affairs director at Jernkontoret, a Swedish steel industry association in Stockholm. “This is what Swedish companies and European companies worry about the most.”
Electrolux, the Swedish manufacturer of household appliances, recently postponed plans to upgrade a stove factory in Tennessee, citing uncertainties created by the tariffs.
In the suburbs of Austin, Texas, Matt Bush, vice-president of a small company that makes structures used in office buildings and retail spaces, said steel tariffs would force his company to pay as much as $50,000 a month extra for metal.
“You have to imagine all the people who are purchasing raw steel and aluminium for input into their business are in the same predicament,” he said.
Trump’s offensive may yet prove to be a negotiating tactic that threatens economic pain to force deals, rather than a move to a full-blown trade war.
It would be serious, not only if the United States took action, but especially if other countries were to retaliate, notably those who would be most affected, such as Canada, Europe and Germany.”
Christine Lagarde | IMF managing director